Limited legal instruments to protect investors’ rights
The problem of weak corporate culture compounded when the legal system does not provide a reliable mechanism for conflict resolution. Throughout the world, well-written and executable legal instruments provide the basis for all financial transactions. Typically, financiers, bankers, or whether direct investors usually have little control over firms in which they invest, and strongly depend on the legal system that protects their rights.
Investor protection is relevant at all stages of the investment process: the placement of newly issued shares to investors, participation in company management and disposition of shares in the company. Investment agreements usually do not contain many of the necessary from the standpoint of investors’ positions, as their performance in terms of Kazakhstan’s law is impossible or considerably hindered.
In particular, the powers of government business entities regulated by domestic legislation in a rather tough, peremptory manner. So, in joint stock companies cannot set specific, not provided for by law, the classes of shares with differing rights management company. Rigidly fixed quorum of the general meeting of shareholders. In the joint stock company cannot change the statutory percentage of votes required for adoption of a decision. Not envisaged by the legislation the possibility of transferring some issues for consideration by the committees and commissions formed by the shareholders or members.
In general, private equity investment experience has shown that, regardless of literacy to enter into agreements fixing the conditions and circumstances of the relationship between investors and companies, there are limited legal leverage in the event of disagreement with company management. Insufficient protection of shareholder rights and the negative experience of being in a minority shareholder often force fund managers to change investment strategy towards the acquisition of a controlling stake.
Non-functional capital market
Every aspect of the investment of private capital is determined by the need to provide a profitable outlet in a certain period of time. In developed countries like USA and UK, a well-functioning IPO market provides the fundamental conditions for the successful existence of the entire industry of private equity. Without a reliable option out of the IPO market for the fund are limited to repurchase shares of the initiator or management (management buyouts), selling to a strategic investor or a financial investor who specializes in the final stages of development.
According to most empirical data output, implemented through the IPO, provides a greater increase in the value of the company, rather than through the alternatives, such as a sale to a strategic investor or back to the initiator of the project (through the management buyout). For example, in U.S. venture funds earn an average of 60% per annum, when exiting through IPO, and 15% - when to sell a stake to private investors. In addition, IPO – a sort of “seal of quality” business, financial transparency and a high level of corporate governance. The fact of the success of the IPO increases the capitalization of the company and improve its reputation. Of course, the withdrawal of the company’s IPO – not an easy task, and subsequent exit from the fund company should be made carefully so as not to derail the course of shares traded.
In Kazakhstan, as in many emerging markets, primary market functions as a tool for raising capital for a small number of large companies, and in the secondary market is dominated by an even smaller number of large firms. Low market liquidity and scanty volume of transactions, lack of interest the general public to exchange transactions, and excessive volatility of quotes do not give the Kazakhstani securities market sufficiently attractive to potential domestic issuers.
Low market liquidity and scanty volume of transactions, lack of interest the general public to exchange transactions, and excessive volatility of quotes do not give the Kazakhstani securities market sufficiently attractive to potential domestic issuers.
As for the prospects of private equity investors in Kazakhstan, in my opinion, despite all the difficulties, we can expect their rapid development in the near future, as gradually creates the necessary preconditions for this: the accumulation of private capital, the growing number of qualified personnel, the development of corporate culture improvement of legislation to protect minority shareholders’ rights, the development of RFCA and the weakening of the tax burden on transactions with securities. The state should be interested in the development of private equity funds, as they contribute to the qualitative and quantitative economic growth. Private equity funds invest in businesses based on the most effective technologies and best standards, and indirectly affect the entire industry, forcing suppliers and competitors also raise their efficiency and business standards. Not accidentally, in the U.S. there is a law under which pension funds can be sent to private equity funds, including venture capital funds, dealing with new technologies, up to 1% of its assets. In addition, the same is a multibillion-dollar U.S. government program to support private equity investments, primarily of the same venture.
In the light of Kazakhstan’s WTO accession can be expected that globalization, with its emphasis on open wounds and low barriers to trade and investment will increase competition between countries and firms for scarce financial resources. At the same time for domestic companies and private equity funds will expand access to finance global funds. This will spur competition among investors, which will reduce the price of money and profitability. In this case, it is hoped that in the strong capital inflows, there will an integrated system of financial institutions in the industry, private equity, which will make your tangible contribution to improving the efficiency and competitiveness of the domestic economy.
Conclusion
In conclusion I would like to observe short review of work.
At the present stage of development of Kazakhstan as a new independent state, orienting to the market economy, the main direction of economic reforms is to develop and implement investment policy aimed at ensuring high economic growth and raising economic efficiency.
To solve these problems, as well as to ensure the structural transformation of the economy through a program of the government’s actions to deepen reforms in the context of limited domestic sources of financing essential attraction of foreign capital in the economy.
Development of investment funds in our country coincide with stock exchange. In 2008, along with reducing of fund indexes it was negative dynamics in development of investment funds.
Consider dependence of indicators of income on unit investment fund from investment strategy of UIF. Analyzing cost of units in different moments in the economy’s life, it is noticed that on the increasing market UIFs with aggressive strategy (investments in shares) have large incomes, but on reducing markets conservative strategy (investments in obligations state securities) are more attractive.
Situation in our country does not distinguish from situation in the world, but just one moment is that amplitude on our growing market is rather more than in well-developed stable markets. In long-term perspective economy always grows and if investors is interested in creation of future capital but not time incomes that’s why investments in unit investment funds and joint-stock investment funds are the most suitable.
Every investor in order to avoid losses before purchasing should estimate period of investments. If the period is less than 3 years, it would rather input money in deposits in banks.
The main conditions of involving foreign capital:
· Creation of stable and developed normative base for activity of investors on the territory of Kazakhstan;
· Stability of tax system;
· Creation of consulting and information systems that provides with solving investment decisions;
· Development relationship of investment funds with international foreign organizations;
· Creation of privilege conditions for foreign and local investors.
Nowadays conditions are similar to 2008. Shares are cheap, cost of units is reducing, unconfidence in future turnover of market made many investors to stop their activities. But after fall, it would be growth.
List of the used literature
1) Оmarovа А.К. «Financing and Lending Investment» Аlmaty,2009
2) Finance law: «Collection of normative legal acts»- Аlmaty: lawyer,2007
3) www.investmentfunds.kz
4) www.invest-market.kz
5) www.afn.kz
6) www.kase.kz
MINISTRY OF EDUCATION AND SCIENCE OF THE REPUBLIC OF KAZAKHSTAN
T.RYSKULOV’S KAZAKH ECONOMIC UNIVERSITY
Course Work
Subject: Money.Credit.Bank
Theme: Investment funds in Republic of Kazakhstan
Author: Asiya Bekenova
202 group
Tutor: Bazarbekova A. D.
Almaty – 2011
Content
1. Investment fund
1.1. The essence of investments
1.2. Types of investments
1.3. Investment policy in RK
2.1. Kazakhstan. Current conditions of investment funds
2. Problems and perspectives of the development of investment funds
Conclusion
Introduction
Investment has different meanings in finance and economics. In Finance investment is putting money into something with the expectation of gain that upon thorough analysis has a high degree of security of principle, as well as security of return, within an expected period of time. In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or gambling.
Investment is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance whether for households, firms, or governments.
Firm that invests the pooled funds of retail investors for a fee. By aggregating the funds of a large number of small investors into a specific investments (in line with the objectives of the investors), an investment company gives individual investors access to a wider range of securities than the investors themselves would have been able to access. Also, individual investors are not hampered by high trading costs since the investment company is able to gain of scale in operations. There are two types of investment companies: open-end (mutual funds) and closed-end (investment trusts). Also called investment fund.